Dallas Burtraw and Blair Beasley posted on Wednesday, pointing out the big decision California must make soon about how to spend the auction revenues from its cap-and-trade program. Yesterday, Burtraw testified before the California Air Resources Board, offering his view on this decision.
You can read his testimony here; but here are the key points:
Dallas first argues that:
Returning value to households through reductions in other taxes or direct payments, despite its appealing features, is viewed as legally risky. In lay-person terms, the legal test is the strength of the link between the source of the allowance revenue (fees) and the way the resulting revenues are used. In contrast, a low legal risk is associated with the use of allowance value to make investments to reduce emissions.
However...
One should note that incremental measures in sectors covered by the cap and trade program may reduce allowance costs under the program, but they are unlikely to reduce emissions, because emissions are governed by the cap. If a measure lowers emissions at one source, it frees up an allowance that is available for another source to use.
Burtraw's suggestion is to think big:
The state could consider transformative investments that achieve emissions reductions in 2020 but are geared to put the state in the position to achieve long run goals for the middle part of the century. These types of investments might, for example, put in place new infrastructure in electricity, transportation or land use.
California certainly needs infrastructure investment, much of which has the potential to reduce long-run emissions. Personally, I'm skeptical that government will be able to spend these large chunks of cash at all efficiently. But that's true for any use of the money save returning it to California citizens, which, as Dallas points out, is probably not legal. If only someone could fix that...
